Zeinab Akil, Mathieu Gomes, Benjamin Williams-Rambaud
In this article we assess the safe-haven, hedging, and diversifying properties of agricultural commodity futures with respect to the S&P 500 index between 1999 and 2021. Our analyses reveal that various agricultural commodities (such as coffee, corn, soybeans, and wheat) exhibit safe-haven and/or hedging properties against the S&P 500 index. We further show that a small exposure to agricultural commodities enables a significant reduction in a stock portfolio’s downside risk as proxied by semi standard deviation and value at risk.
{"title":"The Safe-Haven and Hedging Properties of Agricultural Commodities","authors":"Zeinab Akil, Mathieu Gomes, Benjamin Williams-Rambaud","doi":"10.3905/jwm.2023.1.218","DOIUrl":"https://doi.org/10.3905/jwm.2023.1.218","url":null,"abstract":"In this article we assess the safe-haven, hedging, and diversifying properties of agricultural commodity futures with respect to the S&P 500 index between 1999 and 2021. Our analyses reveal that various agricultural commodities (such as coffee, corn, soybeans, and wheat) exhibit safe-haven and/or hedging properties against the S&P 500 index. We further show that a small exposure to agricultural commodities enables a significant reduction in a stock portfolio’s downside risk as proxied by semi standard deviation and value at risk.","PeriodicalId":39998,"journal":{"name":"Journal of Wealth Management","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2023-09-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43606766","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-07-31DOI: 10.3905/jwm.2023.26.2.001
Jean L. P. Brunel, Paul Bouchey
{"title":"Editor’s Letter","authors":"Jean L. P. Brunel, Paul Bouchey","doi":"10.3905/jwm.2023.26.2.001","DOIUrl":"https://doi.org/10.3905/jwm.2023.26.2.001","url":null,"abstract":"","PeriodicalId":39998,"journal":{"name":"Journal of Wealth Management","volume":"26 1","pages":"1 - 3"},"PeriodicalIF":0.0,"publicationDate":"2023-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47334142","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article presents a new framework to evaluate the merits of an art investment that differs substantially from previous studies. First, it assumes that the investor already holds a portfolio consisting of more traditional assets and is planning to add art to it. This is far more realistic than the usual academic set up in which it is assumed that the investor is planning to deploy a given amount of cash among many assets, one of which is art. Second, the approach departs from the traditional Markowitz’s mean-variance framework in two important ways: (i) the efficient frontier is constructed based on cumulative returns, rather than average returns, and risk is assessed via potential losses and not volatility; and (ii) it relies on a semi-parametric approach to generate synthetic data based on the Gaussian copula and historic returns. Finally, an alternative risk metric, based on losses and not volatility, is introduced. The usefulness of this framework is demonstrated with an example based on art sales auction data.
{"title":"Adding Art to Your Portfolio: A New Risk Assessment Framework","authors":"V. Charlin, Arturo Cifuentes","doi":"10.3905/jwm.2023.1.217","DOIUrl":"https://doi.org/10.3905/jwm.2023.1.217","url":null,"abstract":"This article presents a new framework to evaluate the merits of an art investment that differs substantially from previous studies. First, it assumes that the investor already holds a portfolio consisting of more traditional assets and is planning to add art to it. This is far more realistic than the usual academic set up in which it is assumed that the investor is planning to deploy a given amount of cash among many assets, one of which is art. Second, the approach departs from the traditional Markowitz’s mean-variance framework in two important ways: (i) the efficient frontier is constructed based on cumulative returns, rather than average returns, and risk is assessed via potential losses and not volatility; and (ii) it relies on a semi-parametric approach to generate synthetic data based on the Gaussian copula and historic returns. Finally, an alternative risk metric, based on losses and not volatility, is introduced. The usefulness of this framework is demonstrated with an example based on art sales auction data.","PeriodicalId":39998,"journal":{"name":"Journal of Wealth Management","volume":"26 1","pages":"67 - 82"},"PeriodicalIF":0.0,"publicationDate":"2023-05-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46298119","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article examines the valuation and ESG performance of firms with corporate collections of fine art. Specifically, this article looks at whether having an art collection affects a firm’s valuation. With corporate art collections, there may be the potential for agency issues or the possibility of value enhancement for the firm. This article also examines whether firms with corporate art collections are more socially minded in terms of environmental, social, and governance measures, and philanthropy. The findings provide evidence that firms with corporate art collections have higher environmental, social, and governance performance, while maintaining equal value to their peers.
{"title":"Corporate Ownership of Fine Art: Firm Valuation, Societal Impacts, and Philanthropy","authors":"James S. Ang, C. Boyer","doi":"10.3905/jwm.2023.1.216","DOIUrl":"https://doi.org/10.3905/jwm.2023.1.216","url":null,"abstract":"This article examines the valuation and ESG performance of firms with corporate collections of fine art. Specifically, this article looks at whether having an art collection affects a firm’s valuation. With corporate art collections, there may be the potential for agency issues or the possibility of value enhancement for the firm. This article also examines whether firms with corporate art collections are more socially minded in terms of environmental, social, and governance measures, and philanthropy. The findings provide evidence that firms with corporate art collections have higher environmental, social, and governance performance, while maintaining equal value to their peers.","PeriodicalId":39998,"journal":{"name":"Journal of Wealth Management","volume":"26 1","pages":"83 - 96"},"PeriodicalIF":0.0,"publicationDate":"2023-05-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48451003","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study addresses an important asset allocation dilemma, namely whether investors should diversify their portfolios using commodities directly or commodity stocks, which are equity shares of companies that produce commodities or have a strong relationship to them. The results of the study indicate that commodities added to a stock-bond portfolio perform better than commodity stocks in a stock-bond portfolio. The dominance of commodities portfolios is observed during the in-sample, out-of-sample, and current epidemic time periods. At standard levels of statistical significance, the Sharpe ratios of commodities portfolios are statistically significant. An important outcome of the study is that adding commodities to a portfolio consisting exclusively of stocks and bonds will benefit investors. However, portfolios containing only gold will perform substantially better than portfolios containing the whole range of commodities, such as base metals and energy contracts.
{"title":"Asset Allocation—Commodities or Commodity Stocks?","authors":"Sony Thomas, S. Kumar","doi":"10.3905/jwm.2023.1.215","DOIUrl":"https://doi.org/10.3905/jwm.2023.1.215","url":null,"abstract":"This study addresses an important asset allocation dilemma, namely whether investors should diversify their portfolios using commodities directly or commodity stocks, which are equity shares of companies that produce commodities or have a strong relationship to them. The results of the study indicate that commodities added to a stock-bond portfolio perform better than commodity stocks in a stock-bond portfolio. The dominance of commodities portfolios is observed during the in-sample, out-of-sample, and current epidemic time periods. At standard levels of statistical significance, the Sharpe ratios of commodities portfolios are statistically significant. An important outcome of the study is that adding commodities to a portfolio consisting exclusively of stocks and bonds will benefit investors. However, portfolios containing only gold will perform substantially better than portfolios containing the whole range of commodities, such as base metals and energy contracts.","PeriodicalId":39998,"journal":{"name":"Journal of Wealth Management","volume":"26 1","pages":"123 - 137"},"PeriodicalIF":0.0,"publicationDate":"2023-05-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43907697","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Sanjiv Ranjan Das, Daniel N. Ostrov, Anand Radhakrishnan, Deep Srivastav
Investors planning for retirement balance three Ls: (1) lifestyle risk, hoping to maintain a consumption stream that provides a chosen standard of living; (2) longevity risk, hoping to remain solvent throughout their lifetime; and (3) legacy risk, hoping to leave a bequest to their heirs. We solve this multiple objective problem for a wide range of consumption and annuitization scenarios. For each scenario, we apply dynamic programming to optimally evolve the investments in the non-annuitized portion of the portfolio so as to minimize longevity risk. Our dynamic programming approach has the advantages of (1) generating results that are far superior to what standard Monte Carlo methods, static portfolios, and target date fund glide paths can provide and (2) not requiring utility functions, which are hard to specify for individuals. We show that investors who want to minimize their longevity and legacy risk and who are unable to annuitize their full consumption stream are best off avoiding even partial annuitization of their portfolio. For investors who are able to annuitize their full consumption stream, we quantify their longevity versus legacy risk trade-offs, enabling them to select the best annuity for their needs.
{"title":"Lifestyle, Longevity, and Legacy Risks with Annuities in Retirement Portfolio Decumulation","authors":"Sanjiv Ranjan Das, Daniel N. Ostrov, Anand Radhakrishnan, Deep Srivastav","doi":"10.3905/jwm.2023.1.214","DOIUrl":"https://doi.org/10.3905/jwm.2023.1.214","url":null,"abstract":"Investors planning for retirement balance three Ls: (1) lifestyle risk, hoping to maintain a consumption stream that provides a chosen standard of living; (2) longevity risk, hoping to remain solvent throughout their lifetime; and (3) legacy risk, hoping to leave a bequest to their heirs. We solve this multiple objective problem for a wide range of consumption and annuitization scenarios. For each scenario, we apply dynamic programming to optimally evolve the investments in the non-annuitized portion of the portfolio so as to minimize longevity risk. Our dynamic programming approach has the advantages of (1) generating results that are far superior to what standard Monte Carlo methods, static portfolios, and target date fund glide paths can provide and (2) not requiring utility functions, which are hard to specify for individuals. We show that investors who want to minimize their longevity and legacy risk and who are unable to annuitize their full consumption stream are best off avoiding even partial annuitization of their portfolio. For investors who are able to annuitize their full consumption stream, we quantify their longevity versus legacy risk trade-offs, enabling them to select the best annuity for their needs.","PeriodicalId":39998,"journal":{"name":"Journal of Wealth Management","volume":"26 1","pages":"9 - 34"},"PeriodicalIF":0.0,"publicationDate":"2023-05-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43595910","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Predetermined glidepaths are useful tools for asset allocation and for limiting behavioral biases, but do not account for all the characteristics of an investor, leading to highly varied failure rates between men and women. Our bootstrapping analysis indicates that income levels and earnings patterns, along with life expectancy, have the largest contributions to the differences in failure rates with other issues, such as Social Security, having more modest impacts. The results also suggest that aggressive allocations on the part of men may be a rational attempt to achieve retirement failure rates comparable to women.
{"title":"Should Glidepaths Be Gender-Specific?","authors":"Robert J. Atra, Yuntaek Pae","doi":"10.3905/jwm.2023.1.213","DOIUrl":"https://doi.org/10.3905/jwm.2023.1.213","url":null,"abstract":"Predetermined glidepaths are useful tools for asset allocation and for limiting behavioral biases, but do not account for all the characteristics of an investor, leading to highly varied failure rates between men and women. Our bootstrapping analysis indicates that income levels and earnings patterns, along with life expectancy, have the largest contributions to the differences in failure rates with other issues, such as Social Security, having more modest impacts. The results also suggest that aggressive allocations on the part of men may be a rational attempt to achieve retirement failure rates comparable to women.","PeriodicalId":39998,"journal":{"name":"Journal of Wealth Management","volume":"26 1","pages":"52 - 66"},"PeriodicalIF":0.0,"publicationDate":"2023-05-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47930411","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The goal of tax-loss harvesting is to recognize for tax purposes the losses on investments whose value declined. Currently short-term losses can be written off at 40%, long-term losses at 20%. Tax-loss harvesting is an investor-specific option, which requires professional management. Although munis are always held in taxable accounts they have received little attention, and this article focuses on the unique aspects of the tax-exempt municipal bonds. Due to the so-called de minimis effect the prices of munis selling below par are further depressed. Selling at a discount can save tax and yet lose value at the same time. For this reason, bonds purchased near par are not suitable candidates for tax-loss harvesting; bonds selling at a premium are recommended instead. Proper analysis requires the so-called tax-neutral OAS method, which accounts for the behavior of discount munis. A complicating consideration is that the benchmark municipal yield curve is specified by the yields to call of 5% bonds, which should be converted into conventional interest rates. Periodic after-tax return should be measured and reported to the interested parties. This calculation requires the specification of after-tax portfolio value. Instead of the CFAI’s GIPS method, the so-called tax-smart approach is recommended.
{"title":"Tax-Loss Harvesting Municipal Bonds: A Primer","authors":"A. Kalotay","doi":"10.3905/jwm.2023.1.211","DOIUrl":"https://doi.org/10.3905/jwm.2023.1.211","url":null,"abstract":"The goal of tax-loss harvesting is to recognize for tax purposes the losses on investments whose value declined. Currently short-term losses can be written off at 40%, long-term losses at 20%. Tax-loss harvesting is an investor-specific option, which requires professional management. Although munis are always held in taxable accounts they have received little attention, and this article focuses on the unique aspects of the tax-exempt municipal bonds. Due to the so-called de minimis effect the prices of munis selling below par are further depressed. Selling at a discount can save tax and yet lose value at the same time. For this reason, bonds purchased near par are not suitable candidates for tax-loss harvesting; bonds selling at a premium are recommended instead. Proper analysis requires the so-called tax-neutral OAS method, which accounts for the behavior of discount munis. A complicating consideration is that the benchmark municipal yield curve is specified by the yields to call of 5% bonds, which should be converted into conventional interest rates. Periodic after-tax return should be measured and reported to the interested parties. This calculation requires the specification of after-tax portfolio value. Instead of the CFAI’s GIPS method, the so-called tax-smart approach is recommended.","PeriodicalId":39998,"journal":{"name":"Journal of Wealth Management","volume":"26 1","pages":"97 - 103"},"PeriodicalIF":0.0,"publicationDate":"2023-05-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41814630","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study focuses on the construction of investment portfolios using different optimization methods (1/N, risk parity, hierarchical risk parity, mean variance) based on two ways of asset diversification—cross-country and cross-industry—and assesses their effectiveness using a number of metrics. The main research question is which approach to asset diversification is the most profitable for the investor in terms of return and risk. Research results’ degree of susceptibility of fluctuations in time is assessed by an interperiod analysis with the division of the time interval under consideration into crisis and noncrisis years. According to the results, the industry asset allocation strategy outperforms the asset allocation strategy focused on country diversification. In crisis years, these differences are amplified, but the results are highly dependent on the portfolio optimization method.
{"title":"Comparative Analysis of Industry and Country Diversification Benefits of the Equity Portfolio","authors":"Evgeniya V. Lapteva","doi":"10.3905/jwm.2023.1.212","DOIUrl":"https://doi.org/10.3905/jwm.2023.1.212","url":null,"abstract":"This study focuses on the construction of investment portfolios using different optimization methods (1/N, risk parity, hierarchical risk parity, mean variance) based on two ways of asset diversification—cross-country and cross-industry—and assesses their effectiveness using a number of metrics. The main research question is which approach to asset diversification is the most profitable for the investor in terms of return and risk. Research results’ degree of susceptibility of fluctuations in time is assessed by an interperiod analysis with the division of the time interval under consideration into crisis and noncrisis years. According to the results, the industry asset allocation strategy outperforms the asset allocation strategy focused on country diversification. In crisis years, these differences are amplified, but the results are highly dependent on the portfolio optimization method.","PeriodicalId":39998,"journal":{"name":"Journal of Wealth Management","volume":"26 1","pages":"104 - 122"},"PeriodicalIF":0.0,"publicationDate":"2023-05-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46567243","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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